General and Economic Awareness: Reading the Macro Numbers
General and economic awareness rewards candidates who can read the macro numbers in the newspaper and say what they mean for credit demand, asset quality and interest rates.
Growth and prices
- GDP versus GVA; nominal versus real (deflate with the GDP deflator).
- CPI-Combined (base 2012, compiled by MoSPI) is the policy headline; WPI (base 2011-12) excludes services entirely; core inflation strips out food and fuel.
- IIP measures industrial output; a PMI above 50 signals expansion, below 50 contraction.
Policy and fiscal
- MPC: six members, at least four meetings a year, target 4% with a ±2% band. Failure means three consecutive quarters outside the band, which triggers a report to the government.
- Fiscal deficit = total expenditure − (revenue receipts + non-debt capital receipts). Revenue deficit, primary deficit and FRBM targets are distinct concepts.
- Current account deficit = trade deficit plus net invisibles, funded by capital flows.
Worked example
Nominal GDP grows 10% and the deflator rises 6%. Real growth = (1.10/1.06) − 1 = 3.8%. Subtracting to get 4% is the common error; the correct treatment is compounding through division.
Traps
- Using WPI as the MPC's target measure.
- Equating fiscal deficit with revenue deficit.
- Treating a high CAD as automatically bad without checking whether it finances investment.
- Confusing FDI (lasting, productive) with FPI (volatile, portfolio).